Bitcoin is Dragging Other Cryptocurrencies Down as Correlation Between Them Increases

The increasingly high positive correlation between Bitcoin and other cryptocurrencies is bringing their prices down, now that the tide has turned against Bitcoin since the spectacular rally towards the $20,000 area in mid-December 2017.

With a market capitalization of $111 billion, the BTC continues to recoup the cryptocurrency market dominance it once had.

Correlation Between Bitcoin and Altcoins at 0.7, Up from 0.1 in Early 2018

Correlation amongst assets is the degree to which they move in tandem.

A value close to zero reveals not much dependence between them. This tends to be the case between digital currencies and the stock market. Correlation values range between -1 (returns move in opposite directions) and +1 (returns move in the same direction). However, cryptocurrencies usually present values corresponding to strong positive relationship (0.5 – 1) and moderate positive relationship (0.3 – 0.5).

The ties between Bitcoin and these altcoins have led to significant damage in their market valuation in 2018. As the BTC moved throughout the year from its $20,000 peak to approximately $6,500, where it currently stands, Bitcoin Cash plunged from $3,400 to the $500 line.

Litecoin fell from $366 to $56. Ethereum dropped from $1,377 to $218. NEM crashed to $0.10 down from $1.90. Zcash declined from $888 to $127. Monero fell from $494 to $112. Ripple dived from $339 to as low as $0.29 as the cryptocurrencies continually print new lows in 2018.

The strong positive relationship between Bitcoin and altcoins prices wasn’t always a given. Correlation between Bitcoin and MVIS CryptoCompare indexes of the 10 biggest and the 100 smaller coins has jumped to 0.7 from lower than 0.1 at the start of the year. The highest correlation this year was found in April, where it went as high as 0.9 in April, virtually mimicking each other in a bearish momentum.

The 90-day Pearson rolling correlation also shows an interesting behavior as Bitcoin Cash moves higher from the third place (0.79) to become the digital currency with the strongest positive correlation against Bitcoin (0.88).

Ethereum, which was in the lead 90 days ago with a coefficient of 0.90, dropped gradually to the second place (0.83). Ripple also made a downward trajectory during the last three months, easing from 0.84 to 0.78.

The number of digital assets available for trading in the cryptocurrency market has increased continually, completely disregarding this year’s downward slope in volumes traded – $31 billion on January 01, 2018 to $13 billion today – and market capitalization – $613 billion on January 01, 2018 to $203 billion today.

There are now 1,926 cryptocurrencies being traded in 13,727 exchanges around the world, according to CoinMarketCap, but BTC dominance keeps rising.